Investment ideas from Barron’s/Value Line fund manager survey

Here are some excerpts from the latest Barron’s/Value Line survey which provides insight into where the top-ranked mutual-fund managers are investing and their outlook for the year ahead. The survey aims to identify investment professionals who consistently beat peers with similar investment objectives over a period of at least three years, without undue volatility in returns. The fund managers interviewed provide some valuable commentary into future investment trends and given they are market makers/leaders, there is a good chance that their predictions are more accurate than general market reports.

A great time to load up on the shares of fast-growing corporations selling at markdowns not seen in years. Rather than panic and sell like most investors, this is the time to stay calm, nimble and true to your long-term investment plans.

Roger Hamilton, manager of John Hancock Large Cap Equity Fund, offers another sound recommendation for investors: Invest in companies with good business models, with long-lasting assets. He recently snapped up shares of Bovespa Holding, parent of the Brazilian Stock Exchange, and discount broker Charles Schwab (SCHW).

Other mutual-fund managers also are tip-toeing into financials. “I’m nibbling at financial companies,” says Thomas Soviero of No. 4-ranked Fidelity Leveraged Company Stock Fund, which invests in companies laden with debt. “A lot of companies are trading at less than 12 times earnings. It’s hard to ignore these situations.”

Some fund managers are taking profits in energy and materials stocks, they remain bullish on oil, long term. Energy fundamentals “are good and valuations are low,” says Hamilton, whose $3 billion, 59-year-old fund has 25% of its assets in energy stocks, versus the sector’s 14% weighting in the Standard & Poor’s 500.

Manu Daftary of Quaker Strategic Growth laments that skillful stock-picking might be insufficient in today’s market, where investors seem willing to punish the shares even of companies with strong fundamentals. “There’s so much uncertainty about the direction of the economy,” he says. “Stocks are being driven by sentiment more than fundamentals. I don’t know where the minefields are anymore.” Nowadays, Daftary thinks engineering concerns McDermott International (MDR) and ABB (ABB) are attractive. [Editor - I agree on ABB, and am soon going to do a write up on it]

Thomas Marsico, of Marsico Focus is a fund-industry heavyweight – and contrarian. He’s bearish on oil and bullish on stocks, and he thinks the S&P 500 could reach 1,700 in 18 to 20 months, almost 35% above today’s level. Marsico, who has been cutting his stake in energy while buying financials, thinks economic growth will accelerate by the middle of 2009, while “housing will find its bottom in the next 12 months.” His advice: Own companies with strong balance sheets, and preserve your capital.

Observations

It looks like a number of the fund managers are getting more bullish about the market overall with financials starting to garner some more interest. Also, rather then pulling out money, a lot of fund managers are finding pockets of good value and making strategic long term investments. Despite ongoing volatility and uncertainty, the fund managers think we will see stronger equity markets in 2009 and beyond. The commodities cycle still looks intact as well, despite some short term retracement in prices. Last year the emergining market funds did really well, and I think the year ahead will be the US markets turn for out performance.

The full article and survey results can be found here.

Related:

> Reacting to Market Volatility

> Financial Knowledge and Financial Literacy